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Path Dependency and Governance in German Family Firms

Published online by Cambridge University Press:  17 February 2012


Dynastic family businesses pursue a double aim. They strive for economic success and attempt to shield the family's longterm influence against outsiders. As a consequence, their choice of governance reflects an idiosyncratic balance between remaining independent and tapping into the opportunities of the market. Autonomy-oriented “closed” governance can lead to problems in integrating external capital and knowledge. More market-oriented “open” governance can make a firm more vulnerable to outside influence. German family firms have struck a balance between the two models since the mid-nineteenth century. Their choice of governance is a response to the challenges and opportunities of the environment, and at various times they are influenced by corporate law, alternative finance options, and inheritance law.

Research Article
Copyright © The President and Fellows of Harvard College 2011

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This article was written with the support of a Harvard-Newcomen Fellowship at Harvard Business School. The author would like to thank the anonymous reviewers, as well as Tom Nicholas, John Turner, Mark Stoneman, and Jessica Csoma, for their insightful comments and suggestions.

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